Aggreko loses power on Argentina, order intake concerns

By Michele Maatouk

Date: Tuesday 21 Nov 2017

LONDON (ShareCast) - (ShareCast News) - Aggreko shares tanked on Tuesday as investors focused on disappointing order intake and weakness in Argentina in the temporary power provider's third-quarter results.In an update for the period from 1 July to 20 November, the company said revenue rose just 1% on last year, with reported revenue up 8%. Excluding the impact of Argentina, revenue was up 3% on an underlying basis.

Rental Solutions revenue increased 9%, with revenue in North America up 10%, or 3% excluding the impact of the hurricanes, which generated incremental work but also resulted in the cancellation of maintenance work.

In the Power Solutions Industrial division, revenue was 6% higher, with a strong performance in Eurasia and a good performance in Africa. However, the Middle East saw lower volumes in Qatar after the imposition of sanctions, and in Saudi Arabia, where the lower oil price continues to impact the economy.

In Power Solutions Utility, revenue fell 15%, driven by re-pricing and off-hires in Argentina. Excluding the impact of Argentina, revenues were down 7%. Meanwhile, the year-to-date order intake is 666 MW, down from 1,034 MW last year.

Aggreko said the prospect pipeline continues to be healthy, although it is taking longer to convert than last year. In Japan, half of its 148 MW contract has off-hired early, paying an early termination fee, and it expects the rest to off-hire in the first quarter of 2018. In addition, it continues to expect that the remaining 214 MW of volume in Argentina will off-hire at the end of 2017.

The off-hire rate for the nine months ending 30 September was 24% and Aggreko expects the full year rate to be in line with its historic average of around 30%, while forecast fleet capital expenditure is unchanged at around £300m.

"Our full year guidance remains unchanged. The trading performance continues to support our view that, Argentina aside, we will grow this year," Aggreko said.

RBC Capital Markets said it would expect 2018 consensus forecasts to come down 5-10% given a weak order intake and further off-hires.

Meanwhile, UBS said that while revenue growth of 1% is a small improvement compared to a flat performance in the first half of last year, it is slightly below the bank's forecast of 3% growth.

"While FY18 guidance will only be given in Mar-18, Aggreko is flagging some more headwinds today with Japan off-hiring early and Argentina's longer running to end this year. FY18e consensus PBT of circa £225m currently implies more than 12% growth overall, but these factors make this challenging and we expect to see consensus downgrades."